A firm's collection period needs to be evaluated on the basis of its percent of credit sales.

Question

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A firm's collection period is evaluated on the basis of the average number of days it takes to collect outstanding accounts receivable, not on the basis of the percent of credit sales. The percent of credit sales is used to determine the amount of credit sales that will eventually become accounts receivable and need to be collected.

A Firm's Collection Period Needs to Be Evaluated on the Basis